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From February 7th through February 9th, the CFP Board’s new Center for Financial Planning hosted their inaugural Academic Research Colloquium (ARC) in Washington D.C. The event brought together 215 academics from 130 colleges and universities to share and discuss research relevant to the financial planning profession, as a part of the CFP Board Center’s longer-term goal of establishing itself as the “academic home” for the financial planning profession (and the research that supports it).

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – provides a recap of the 2017 CFP Academic Research Colloquium, and highlights a few of the latest research studies with particularly relevant takeaways for financial planning practitioners.

The 2017 CFP Academic Research Colloquium had a strong showing from some core financial planning academic programs, with scholars from Texas Tech, Kansas State, Georgia, and The American College serving as lead authors for nearly 50% of all research presentations and poster sessions. Additionally, the colloquium was successful in drawing in scholars from outside of the core financial planning programs, featuring lead authors from 27 other academic institutions, including Wharton School of Business, Harvard Medical School, and Yale.

The colloquium featured a wide range of topics. Some particularly relevant themes for financial planning practitioners ranged from diversity issues within financial planning (including an analysis of the experiences that increase female likelihood of pursuing a career in financial planning, as well as an examination of the predisposition of women to use the services of a financial planner), to client trust and communication (including the use of solution-focused financial therapy techniques to help clients set financial goals, and an investigation of how different types and frequencies of communication are associated with client satisfaction, trust, and commitment), and the always important topic of retirement planning (including a detailed examination of the use of QLACs in retirement income planning).

Overall, the inaugural CFP Academic Research Colloquium was an objective success. Attendance was strong from a wide range of educational institutions (including many not traditionally known for financial planning), research submissions were higher than expected, and the Center for Financial Planning was successful in recruiting a diverse group of academics and practitioners, above and beyond even what the FPA has been able to achieve in recent years with its partnership with the Academy of Financial Services. In the coming years, we will see whether the Center for Financial Planning is successful in their pursuit to become the academic home of financial planning research, but so far it’s off to a very strong start.

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Acknowledging the need for and value of professional guidance in the long-term management of investment assets, the Internal Revenue Code allows investment advisory fees to be deducted as IRC Section 212 deductible expenses. Additionally, tax law also allows for Section 212 deductible expenses to be paid directly from the retirement account which accrued the expense, without fear of being treated as a taxable distribution (potentially subject to early withdrawal penalties) or a “prohibited transaction” (which could otherwise disqualify the entire account). However, while the benefits of investment advisory services are implicitly acknowledged in current tax law, the same is not true of financial planning services; unfortunately, financial planning fees cannot be paid from a retirement account without triggering the aforementioned adverse tax consequences… even though they may be equally (if not more) important in helping someone accomplish their long-term financial goals!

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – delves into why it’s problematic that financial planning fees can “only” be paid from after-tax accounts, the behavioral advantages of being able to pay financial planning fees from a retirement account instead, and explores how modifying current tax rules could allow more consumers to access financial advisors (while also creating better incentives for all advisors to be able to give advice that aligns with the clients’ best interests).

The reason why the source of financial planning fees matters is Shefrin and Thaler’s mental accounting framework, which finds that consumption is broadly divided into three buckets: current income, current assets, and future income (or the assets that support future income). We know from behavioral research that people treat these “buckets” of money differently, where certain purchases are more or less likely to occur from one bucket versus another (depending on the nature of the expense). When it comes to financial planning services in particular, which is generally associated with “long-term” planning, mental accounting alignment suggests that consumers would be most comfortable paying such expenses from the “long-term” (i.e., future income) bucket. However, as noted earlier, paying financial planning fees from a retirement account isn’t permitted… unless the financial planning services are bundled into a primarily-investment-management AUM fee, or a product commission paid with IRA dollars, which isn’t always feasible or desirable.

There are alternative options that could be considered for giving consumers more control over their future income assets, though. One simple solution is to allow consumers to write checks or transfer funds to licensed financial advisors directly from their retirement accounts, and make the expense permissible (without adverse tax consequences) as long as it’s paid to a (registered?) financial advisor. Other possibilities include giving consumers greater flexibility to roll money out of employer-sponsored retirement plans (similar to current HSA rules), or opening up paths for consumers to pay for services without rolling their funds out of employer-sponsored plans in the first place. Though, perhaps the simplest solution of all is to modify IRC Section 212 to recognize financial planning fees, which would both allow financial planning fees to be deductible when paid from an after-tax account, and also to be “safely” paid pre-tax from a traditional qualified account (perhaps with a complementary safe harbor under Section 4975 to make it clear that “comprehensive” financial planning fees are not prohibited transactions).

But ultimately, if the aim of tax policy is to facilitate better outcomes for consumers, it’s worth acknowledging that the current framework unintentionally exhibits poor behavioral characteristics by limiting the ability of consumers to pay for long-term financial planning advice from accounts that are ear-marked for long-term goals (or forcing those financial planning fees to be bundled with AUM fees or product commissions that may not be practical or feasible in all situations)!

When we launched, we knew we would be at the cutting edge – or even the bleeding edge – of how financial advisors will get paid for financial planning in the future. What we didn’t know, however, is that we’d also find ourselves at the bleeding edge of regulation over how financial advisors are compensated for fee-for-service advice as well.

Because what we’ve learned in the 3 years since is that the word “retainer”, while relatively straightforward as an explanation to consumers of how services will be paid for – raises significant regulatory concerns. In some cases, we think the concerns are justified; while we’re confident on the value proposition of an XY Planning Network advisor to validate their ongoing cost, there will someday come a day where financial advisors begin to charge monthly retainers but don’t actually do any real work for clients. At that point, consumers become exposed to a new form of “reverse churning”, where similar to abusive AUM fees, the advisor might charge on ongoing fee (or even try to lock clients into an ongoing fee) but not actually provide any ongoing value.

Fortunately, the reality is that with a model like monthly retainers in particular, consumer risk is largely ameliorated by the fact that substantial fees aren’t actually being prepaid in advance (unlike a traditional long-term retainer arrangement); instead, consumers generally have the ability to terminate the advisor at any time, and immediately end what is effectively an ongoing monthly subscription fee they were paying to the advisor. Which is far better than paying an annual retainer fee, and then discovering one month later that the advisor is shutting his/her doors, and that the other 11 months of fees have been forfeited.

Nonetheless, even when paying on a monthly basis, there are still valid regulatory concerns about whether consumers will be protected. Should advisors be allowed to create longer-term retainer fee agreements as well? What kinds of notifications are necessary to ensure consumers are aware of and remember what they’re paying, which in turn helps to ensure the advisor remains held accountable for service and value? What needs to be done to ensure fee billing and the potential access to bank account or credit card numbers that may entail, doesn’t trigger custody of client assets? And how should regulators (and consumers) evaluate whether a fee is “reasonable”, particularly if it is primarily for non-investment purposes and bears no relationship to the size of investment portfolios?

The added complication is that because financial-planning-centric advisors may not manage portfolios at all, they will in practice be regulated predominantly by state securities regulators, which we’ve found over the past several years have quite varying views about the safety (or not) of charging consumers non-AUM fees (and in some cases, different opinions from different regulators in the same state!). In other words, there is little uniformity regarding the above regulatory issues about fee-for-service financial planning from one state regulator to the next. Accordingly, to the extent that the monthly retainer and other fee-for-service financial planning models are gaining momentum, perhaps it’s time for NASAA to consider a Model Rule that sets forth best practices in reasonable regulation and oversight of these new financial advisor business models?

With the total number of financial advisors continuing to decline year after year, the industry is increasingly focusing on what it takes to attract and retain new financial advisors, with a strong focus on career track opportunities and how to improve retention. However, new research from the CFP Board reveals that the real blocking point to growing the ranks of financial planners is simply that too few young people even know that financial planning exists in the first place! In other words, our struggles to grow are first and foremost a simple issue of awareness… or lack thereof!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we chat with Kevin Keller, CEO of the CFP Board, at the Center for Financial Planning’s new Academic Research Colloquium, about the challenges of financial planning awareness, new initiatives from the CFP Board, and what individual financial planners can do to help.

Because despite the fact that financial planning is a very lucrative career – especially when compared to the median household income in the US – the research shows that most young people are skipping financial planning as a prospective college major because they simply don’t know that the opportunity exists! As a result, even generalized public awareness campaigning, such as the CFP Board’s “DJ ad”, have actually been successful at attracting people to download the “Guide to Certification” and check out financial planning as a career.

Fortunately, the needle is beginning to move, as is evidenced by the 1,000 people from baccalaureate programs that sat for the exam this past year (up from 700 the years before). But there is still room for progress. Accordingly, in 2017, the CFP Board will be launching a new “I’m a CFP Pro” initiative – with the aim of increasing both gender and racial diversity by telling the stories of CFP professionals who are women and people of color – in addition to continuing to grow their Women’s Initiative (WIN) and women-to-women mentoring program. Also being launched this year is a new Massive Open Online Course (MOOC) offered through Coursera in partnership with the University of Illinois, and a new certificate program with the Columbia University to help train advisors who want to be financial planning educators the necessary skillsets to actually teach the material.

The bottom line, though, is simply to recognize that the biggest problem in bringing new people into the financial planning industry is that many don’t realize the profession exists in the first place. So if you want to have a role in advancing the profession, go back and speak to your alma mater or alumni association and just tell them about what you do as a successful financial planner, and help spread the word. Or alternatively, if you’re connected to the TV industry at all, help us figure out how to launch a new television show that features financial planning or a central character who is a (good) financial planner!

While the looming DoL fiduciary rule has heightened consumer awareness of the concept of fiduciary duty, the reality is that being a “fiduciary” (or not) isn’t actually a singular concept. While conceptually, it’s about acting in the interests of the client, and honoring the fiduciary duties of loyalty and care, not all regulators define (nor enforce) those terms consistently.

One reason for varying fiduciary standards is the fact that different industry channels are regulated by different overseers – each of which defines fiduciary obligations in their own way. Registered Investment Advisers (RIAs) are overseen by the SEC and state regulators, which have both adopted a disclosure and transparency oriented approach to fiduciary duty, but only to investment advice and investment management. While the DoL fiduciary rule impacts anyone giving advice on retirement accounts (and not taxable investment accounts), but is more stringent in its limitations on conflict of interest. And the CFP Board requires that certificants often adhere to a fiduciary duty, but the requirement depends on specifically whether the certificant is actually doing “finanical planning” for a client.

And organizations with voluntary fiduciary standard for their advisor members – like NAPFA and the XY Planning Network – have their own definitions of when a fiduciary duty applies, and what conflicts are and aren’t permitted. In addition, RIAs who are struggling to differentiate as fiduciaries – now that DoL fiduciary will apply the rule to more advisors in the future – are looking to even more stringent versions of voluntary fiduciary rules, such as the new Fiduciary Registry from the Institute for the Fiduciary Standard, or CEFEX certification.

The bottom line, though, is simply that there are many different definitions of fiduciary duties, and two advisors who are both “fiduciaries” might still have very different fiduciary obligations. And unfortunately, given the research showing that consumers struggle even to understand the difference between fiduciary and suitability standards, it’s not likely most will grasp the nuances of the many different types of fiduciary duties anytime soon.

The Department of Labor’s fiduciary rule has become a highly contentious issue in the US, with some suggesting that it will ultimately improve the quality of advice for consumers, and others suggesting it will lead to a damaging mass exodus from the industry. But the reality is that debates about lifting the standards for financial advice is not unique to the US; in fact, countries ranging from Australia to India, and from the Netherlands to the UK, have all enacted even more stringent reforms than the DoL’s fiduciary rule, in most cases resulting in an outright and total ban on all investment commissions. Which provides us an interesting glimpse into how the financial services industry really is impacted as fiduciary standards are raised and commissions are reduced.

In this guest post, industry commentator Bob Veres shares his recent interview with Keith Richards, regarding the ban of commissions in the UK that was implemented in 2013 after their Retail Distribution Review (RDR), and how it has impacted demand for financial advice. Richards is the CEO of the U.K.’s equivalent of FINRA, and a former executive at UK equivalents of a major life insurance company, and before that a major broker-dealer.

Given his background, Richards was not surprisingly a major skeptic of the commission ban before it was enacted. But the “surprise”, he reveals, is that the ban on commissions has actually created an environment which is better for both the industry and advisors. Richards believes that transparency and separation of fees from products has resulted in advisors better understanding the needs of their clients and articulating the value they provide, which has resulted in clients who are perfectly willing to pay for an advisor’s expertise. In fact, demand for financial advisors is on the rise since commissions were banned, and financial intermediaries that feared a massive decline in revenue are actually seeing an increase, instead!

However, there are some reasons to believe that a ban on commissions in the US might not play out the same way it did in the UK. The key distinction is that nearly 20 years ago, the UK began to lift the educational standards for financial advisors, which meant that by the time commissions were banned and advisors had to get paid for advice, they were actually reasonably well trained to deliver that advice. By contrast, in the US, a wide swath of “financial advisors” have nothing more than basic Series 7 or Series 65 licenses, and consequently might not have enough training and education to get paid for their advice alone, if they were actually required to do so! Which means ultimately, lifting the standards for financial advice in the US needs to consider both the fiduciary duty of loyalty, and educational competency standards as well!

Nonetheless, for those advisors – or executives at financial services companies – who fear that a fiduciary standard and limitations on commissions would be destructive to the financial advisor business model, hopefully this perspective on how an even more stringent fiduciary standard and commission ban in the UK actually increased demand for financial advice, and the success of financial services companies, will be helpful food for thought!

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In financial services, the terms “industry” and “professional” are often thrown around casually and used interchangeably. But in the end, are financial advisors simply part of the financial services “industry”, or do they deserve to be recognized as “professionals” instead? Is there a point at which we switch from one to the other? What does it take to really earn the label of “professional”?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore the difference between an “industry” and a “profession”, and what this distinction means for those who wish to see financial planning regarded as a bona fide profession.

Because the reality is that there truly is a difference between an industry and a profession. Bona fide professions – such as divinity, medicine, and law – are distinguished from other occupations by common elements, such as having a specialized body of knowledge, education and experience requirements, societal recognition of the “good” they provide, ethical requirements (to which they’re actually held accountable), and control of their terms and labels (and who can and cannot hold out as a professional).

By contrast, the term “industry” typically refers to a grouping of companies focused around particular service or business activities. Industries are also broader in scope than professions. Professionals may work within an industry, but there’s more to an industry than just professionals. Which means it’s not a matter of whether financial advisors are professionals or part of an industry, but that as professionals they would still be part of an industry.

Nonetheless, the question still arises as to whether financial planning itself really merits the label of being a profession… and unfortunately, it appears the answer is “No”, or at least “Not Yet”. Because while many financial planners have voluntarily decided to fulfill more rigorous education, examination, experience, and ethical requirements (such as via CFP certification), the reality is still that anyone can choose to call themselves a financial advisor or a financial planning professional, and the public often can’t tell the difference (at least, not until after the fact).

Which means until financial planning (re)gains control of its terms, the financial services industry will continue to include both the financial advisors who elevate themselves to the standards of a professional, and also all the rest who may hold out as “financial advisors” to the public but who have little actual training as such!

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The annual process of selecting new members to a board of directors for a non-profit in the financial planning world is rarely news. But given the size of the CFP Board, and the diversity of their stakeholders, changes to the CFP Board’s Board of Directors can be an exception. And in fact, the CFP Board’s latest 2017 additions include a number of notable new members, from a (former?) asset management and large broker-dealer, to several media-related executives, to a former state securities regulator.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore the background of the new members of the CFP Board’s Board of Directors, and what these new additions may signal regarding the CFP Board’s upcoming new initiatives in the next few years.

The first noteworthy newcomers are Doug King, CEO of Cetera Advisor Networks, and Jack Brod, head of the Financial Advisor Services Group at Vanguard. These gentleman are significant because they represent the interests of “large firm financial planning” (i.e., firms that are so large that they look nothing like the independent advisory firms that comprise the majority of the CFP Board’s current Board of Directors). The increased engagement of this segment of the industry with the CFP Board is particularly relevant to independent advisory firms, and in the case of Vanguard in particular signals that the firm is substantially pivoting from “just” being an asset manager, into a more full-service advisory firm that competes with independent advisors as well.

Also new to the CFP Board’s Board of Directors are Susana Duarte de Suarez, who runs a global communications firm called Media Moon Communications, and Dane Snowden, who is the Chief of Staff for the NCTA (which was the National Cable Telecommunications Association, and is now the Internet & Television Association). Coming from the areas of media and communication, the addition of these new members may be a sign that the CFP Board is gearing up for a new stage in their (thus far, very successful) public awareness campaign.

And the final addition to the board is Denise Voigt Crawford, who previously was the Texas State Securities Commissioner for 17 years, and is also a former two-time president of the NASAA (the North American Securities Administrators Association, a membership group for state securities regulators). Given Crawford’s connections to state securities regulators, and the CFP Board’s limited success in lobbying for Federal regulation of financial planning under Dodd-Frank, her addition to the CFP Board’s Board of Directors may be a sign that the next stage of CFP Board and Financial Planning Coalition advocacy is a switch to start lobbying for state regulation of financial planning in the coming years!

In the nearly 10 years since Kevin Keller took over as the CEO of the CFP Board, the rolls of CFP certificants have grown by over 35%, even amidst a global financial crisis and an advisor demographics challenge that has contributed to a nearly 15% decline in advisor headcount over that time period.

In Keller’s early days, the CFP Board’s focus was squarely on rebuilding trust with its various stakeholders, from a relationship that had suffered greatly from a string of 6 CEOs in the preceding 6 years before Keller took over. It was a time filled with growing communication from the CFP Board to CFP certificants, where initiatives were extensively vetted for stakeholder opinion and feedback, and more than half a dozen different public comment periods for various rules changes.

Yet since 2012, the first year that CFP Board “lost” an initiative due to negative feedback during the public comment period, the tone of CFP Board’s engagement with stakeholders has shifted. It’s now been a full 4 years since the CFP Board announced a single public comment period at all, despite engaging in numerous – and several unpopular – rules changes in the interim. And the CFP Board’s growing aspirations is leading towards an ever-growing path of mission creep, from being “just” the organization that maintains the CFP marks, into one that offers a Career Center, an academic home for CFP certificants, its own Journal, and even proposed to go into competition with its own CE providers.

Of course, ultimately any organization is accountable to its stakeholders who can “vote with their feet” to take their business elsewhere. Yet the growing dominance of the CFP marks as the financial planning designation of choice means financial planning practitioners have never had fewer real alternatives to choose from. And the CFP Board’s ongoing Public Awareness Campaign, with its “Certified = Qualified” message, implicitly impugns any CFP certificant to their clients if that individual decides to walk away from the CFP marks – which makes the limited complaints to CFP Board’s policy changes look less like tacit stakeholder affirmation, and more like acquiescence under duress.

While some might suggest this is all the more reason to step away from the CFP marks and find an alternative designation, I still believe that the CFP Board and its certification are still the best chance we have to become a recognized and bona fide profession. But it does mean that perhaps it’s time to recognize that the CFP Board’s success in growing the adoption and prominence of the CFP marks is fundamentally changing the stakes and its relationship to CFP certificants as stakeholders.

And so if the organization wants to maintain its legitimacy and authority with CFP stakeholders, it needs to (re-)adopt its use of public comment periods (and actually make the results public as other oversight organizations and regulators do!), not unilaterally force all CFP certificants to waive their right to hold the CFP Board accountable in court under any/all circumstances, and consider whether a governance model that deigns so much authority to its CEO and selects its board successors by purely internal means is really the right approach for its increasing role in the financial planning profession.

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The looming implementation of the Department of Labor’s fiduciary rule has raised many questions about whether products like non-traded REITs, variable and indexed annuities, and actively managed mutual funds will still be able to survive and thrive when commissions are at least curtailed. And the shift raises significant challenges for the broker-dealer platforms that distribute those products. But as it turns out, broker-dealers aren’t the only ones facing significant collateral damage from the coming product fallout.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at how the contraction of commission-based products may also lead to a significant contract in financial services product advertising, which could have significant spillover effects into the industry trade publications and membership associations that are highly reliant on those advertising dollars to buy ad inventory and booth sponsorships.

Ironically, though, a contraction in financial services product advertising could actually be a boon for financial advisors, as a reduction in the advertising from financial services product manufacturers after our clients’ money could leave more room for advertising from companies that actually create solutions for advisors themselves. There’s more room for advisor FinTech firms and industry consultants to compete for advisors’ attention when they’re not being crowded out by large financial services product manufacturers.

But given that solution-providers for advisors tend to be much smaller companies, with less revenue and less advertising buying power, a contraction is still coming in industry advertising, which could have harsh consequences given the over-abundance of industry trade publications and conferences, all vying for advisors’ limited attention.

In the long run, though, the reality is that financial services industry advertising may end out being larger than ever. After all, if financial services product manufacturers cannot compete by paying the best commissions, and have to compete by designing and offering the best product, there’s even more pressure to market that product effectively. Which means more advertising, and more spending at conferences. But given the timeline for DoL fiduciary implementation, those dollars may not show up until 2018 and beyond. In the meantime, trade publications and membership associations may be facing a very tough 2017.